Google vs. Overture battle

Plus: What it takes to attract dot-execs

By

BambiFrancisco

SAN FRANCISCO (CBS.MW) -- Popular search engine Google is a private company, but it knows how to ruffle the feathers of a public company.

Shares of Overture
OVER, -11.95%
lost 11 percent to $26.03 after Google announced late Tuesday that it would offer advertisers a way to pay only when their advertisements are clicked on by users. This form of payment is the service Overture has been successful in offering. This announcement comes about two weeks after Google won EarthLink, an Overture customer at the time, as a customer. Ahead of that announcement, shares plunged 41 percent to less than $18 per share.

The stock recovered to as high as $34 soon after, partly because the drop seemed to be an overreaction. Analysts are making that case, once again.

"While this new offering should be more compelling to advertisers," wrote Anthony Noto, analyst at Goldman Sachs, "we believe that Overture's model still offers advertisers better reach (85-plus percent vs. low 20s for Google), transparency on pricing, ability to control placement and ability to control rate-of-investment on their advertising campaigns."

Google has been making strides ever since it nabbed former Novell CEO Eric Schmidt to become CEO last year. For his expertise, Schmidt was given about a seven-percent interest in the company.

What it takes to attract dot-execs

The idea of dot-com riches seducing seasoned executives, made memorable when George Shaheen left the consulting world to become CEO of now-bankrupt Webvan, is a distant memory. With a stock market slump, the lure of stock options has lost its cachet.

Yet this year, there is a lot of executive shuffling going on, and the question is what does it take to attract top talent?

Earlier this year Yahoo's
YHOO
president, Jeff Mallet, a seven-year Yahooligan veteran, announced that he would be stepping down.

After being at the helm of CMGI
CMGI
for 16 years, transitioning it from a direct marketing business to an operator and investor in high-tech companies, David Wetherell announced on Tuesday that he was giving up his CEO position. On the same day, Verticalnet
VERT
board member and former SAP America CEO Kevin McKay was appointed Verticalnet's new president and CEO. He takes over from Mike Hagan, Verticalnet's co-founder.

The turnover at Yahoo is set for April, when Mallet leaves. At CMGI, chief financial officer George McMillan will take on the CEO role and hopes to find someone to fill his CFO shoes in a couple of weeks. So, what does it take to attract executives to companies that went public in the past several years, and offer seemingly less stability than long-standing companies?

More cash, more equity

More cash, as well as more equity, said John Thompson, vice chairman of Heidrick & Struggles, who's worked on a number of high-profile placements in Silicon Valley. He recruited George Samenuk and Bill Conner for the CEO positions at Network Associates
NET, +1.79%
and Entrust
ENTU
respectively. He helped woo Schmidt away from Novell to become Google's CEO. He also helped put the pay package together when Ariba
ARBA
promoted its CFO Bob Calderoni to the CEO position.

"It would take a package that includes 3 to 4 percent of a company and a salary between $750,000 to $1 million compared to less equity and half a million," he said, referring to compensation packages now vs. during the heyday. Not surprisingly, the risk profile of a CEO has changed. "They see more risk at these companies and understand the realities of what it takes to make them succeed." The result: more compensation all around.

To be sure, talent isn't scarce these days after the massive amount of layoffs in the past 18 months. But in these times, it seems that's only helping recruiters place jobs at the more seasoned and stable companies."As a result of the reduction in opportunities available to people, supply has far outstripped the demand," said Charles Geoly, executive recruiter at Russell Reynolds. "I'm having far more success today recruiting for a chip company that has historically competed with the high-profile networking companies in the past. Those companies were hot."

It's hardly worth mentioning that the tables have turned.

At Verticalnet, the company appeared to have upped the ante. "We had to put an aggressive compensation plan," said Hagan, who has been with the company through different CEOs, such as Mark Walsh and Joseph Galli. How has it changed for him?

"Certainly, in the past two years, a lot of executives, sales guys and heads of product development are not weighing the equity component package as they once did." But options are still a key component, as Thompson pointed out. And incoming CEO of Verticalnet Kevin McKay agrees.

"I think stock options are an important piece. They've lost the get-rich-quick scheme component to them, but I really believe that having the executive tied to shareholders through stock performance is important, it's an important part of compensation."

And compensated they must be during these difficult times. Executives seeking less bureaucracy and freedom to innovate might find themselves drawn to an up-and-coming private company.

That's because many of the companies that went public during the peak of the bubble might be in a more difficult situation than private companies, if it's only for the mere psychological battle.

"It is easier to hire a coach for a promising team on the way up than it is to hire a coach for a group of former champions who are severely injured," said Matt Ocko, general partner at Vantage Point Venture Partners. "These people have to be turnaround people and there are not that many executives who want to take a mess and turn it into something viable."

Unless compensation is significantly high, a private company position offers fewer headaches, less public scrutiny and a comparable period to reap the rewards.

"There has to be a huge payout at the end of the rainbow because it might just take the same number of years to take a 25-cent stock and turn it into $1 vs. taking a 10-cent option in a private company and making it worth something more."

At CMGI, incoming McMillan doesn't think he'll have a problem finding new talent. "In general, the value proposition is much higher now (vs. nine months ago)."

But McMillan isn't planning on taking a $1 salary and the rest in options like Wetherell had done. "Dave took it for Dave's reasons. Suffice it to say that the offer is different from that, but the goals are the same."

The goal may be the same -- get the company to be a profitable business -- but the company is certainly not.

CMGI now has nine operating businesses, down from just over 20 in the heyday and has active investments in 35 companies, down from between 40 and 50 when the market peaked in spring of 2000. As for Verticalnet, the company evolved from an operator of online marketplaces, akin to online catalog companies. Now, it's all about software and collaboration. Verticalnet is currently seeking to sell its marketplaces. That's another story in and of itself: what does take to attract buyers to dot-com ideas that never really took off?

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